Australia’s benchmark index ended the session down 1.5% as local investors followed Wall Street's lead overnight on worries about rising Middle East tensions and concerns that interest rates will stay elevated for longer.
All 11 sectors ended the day in the red — tech stocks (-1.86%) and financials (-1.67%) feeling the worst of the pain.
All four big banks closed lower. CBA lost 1.70%, NAB down 1.73%, Westpac dropped 1.77% and ANZ declined 0.99%, while Macquarie also lost 2.86%.
The big miners were also hit — BHP (ASX:BHP) ended 1.7% lower and Rio Tinto (ASX:RIO) lost more than 2%.
Yet gold stocks benefited from a move to safe havens — Northern Star leapt 4.14%, Evolution Mining gained 0.7% and Newcrest added 0.2%.
Rates to stay high
Federal Reserve Bank of New York president John Williams said that in order to bring inflation back down to the central bank’s 2% target, interest rates would have to stay at restrictive levels “for some time”.
City Index market analyst Fawad Razaqzada said: “We just don’t know how long inflation is going to remain elevated, which in turn raises question marks about the longevity of high interest rates.
“Judging by recent data in the US, oil prices and Fed commentary, it can be a long time before the Fed starts cutting rates again.”
Job rate falls, employment gains underwhelm
Australia’s jobless rate fell by more than expected in September, to 3.6%, yet employment increased by just 6,700 people, significantly lower than the 20,000 that economists expected. The underwhelming employment gains were offset by a lower participation rate as more unemployed Australians gave up on finding work.
The RBA expects the jobless rate to drift higher to 3.9% by the end of the year and to 4.5% by mid-2025 as interest rate rises take effect and the economy slows.
RBA board meeting minutes noted increasing underemployment and youth joblessness as evidence the jobs market was responding to the fastest interest rate tightening cycle in a generation.
RBA governor Michele Bullock also revealed concerns about the effects of the escalating war of inflation and oil prices, which could trigger a slowdown in global growth.
“The more [shocks] keep inflation elevated, even if it’s from supply shocks, the more people adjust their thinking. And the more people adjust their inflation expectations, the more entrenched inflation is likely to become,” she said.
Rabobank head of foreign exchange strategy Jane Foley said: “The risks of an escalation [in the Middle East] have risen on the back of the latest news reports regarding the hospital bombing … on any clear escalation, we can expect to see a ratcheting up of risk aversion.”
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